Top AI Stocks to Consider for 2024

Artificial intelligence (AI) stocks have significantly impacted the market this year. As AI’s influence continues to grow, several companies are poised to help push the market higher next year.

Looking to invest $1,000? Our analyst team has highlighted the 10 best stocks to buy right now. Check out the 10 stocks »

1. Nvidia: The AI Powerhouse

Nvidia (NASDAQ: NVDA) has emerged as a major winner in AI infrastructure, thanks to its graphics processing units (GPUs) that serve as essential components in data centers for training large language models (LLMs) and running AI tasks. As AI capabilities grow, the demand for computing power does as well. For instance, both xAI and Meta Platforms reported using ten times more GPUs for their latest LLMs compared to previous models.

The ongoing requirement for increased computing power, coupled with Nvidia’s strong position due to its CUDA software platform, makes it a compelling buy. Initially designed to enhance graphics rendering, CUDA has evolved into a standard platform for programming GPUs, further strengthening Nvidia’s market position.

With AI infrastructure investments projected to rise significantly by 2025, Nvidia has substantial growth potential. The stock is also reasonably priced, with a forward price-to-earnings (P/E) ratio of about 31.5 and a price/earnings-to-growth (PEG) ratio around 0.98. Generally, a PEG ratio below 1 suggests a stock may be undervalued.

2. Taiwan Semiconductor Manufacturing: A Foundry Leader

Many chipmakers utilize a fabless model, where design and manufacturing are separated. This strategy is due to the high costs associated with building and operating chip manufacturing facilities, known as foundries. To be profitable, these foundries must operate near full capacity, and producing chips for multiple clients aids in maintaining that level of operation.

As the need for advanced AI chips skyrockets, Taiwan Semiconductor Manufacturing (NYSE: TSM) has emerged as a leading beneficiary. Competing companies such as Intel and Samsung have faced challenges, allowing TSMC to establish itself as the premier contract semiconductor manufacturer worldwide, benefiting from scale and technological advantages.

Top clients include major players like Apple, Broadcom, and Nvidia. TSMC’s rivals’ difficulties have also increased its pricing power, contributing to higher profit margins as the company plans further price hikes for the coming year.

Given the current trends, TSMC appears well-positioned for ongoing success in the AI sector. The stock currently trades at an appealing forward P/E ratio of 23 and a PEG ratio of 1.19.

Image source: Getty Images

3. Alphabet: Cloud Computing Innovator

Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) has leveraged its cloud computing platforms to benefit from the AI shift. Google Cloud’s revenue growth surged to 35% last quarter, reaching $11.4 billion. This growth outpaced both Amazon’s AWS (19%) and Microsoft’s Azure (33%). More importantly, Alphabet’s cloud segment has reached a turning point in profitability, with operating income rising dramatically to $1.95 billion in the latest quarter.

The company notes that its Gemini model is gaining traction, assisting clients in developing customized AI models. The introduction of custom AI chips, developed in collaboration with Broadcom, is also a significant advantage, as these chips reduce processing times and lower costs for AI tasks.

Earlier this month, Alphabet showcased its latest AI tools, including Veo 2, a next-generation video AI generator, and Whisk, an innovative AI image generator. Early comparisons of Veo 2 to ChatGPT’s Sora generator highlighted Veo 2’s superior performance. Whisk has received positive feedback as well.

Alphabet’s new AI model, Gemini 2, promises to be integrated across its services, including Google Search. Despite investor concerns regarding AI’s potential impact on Google’s search dominance, there are new revenue opportunities. Currently, Google serves ads on only about 20% of searches. The use of AI Overviews could open new avenues for monetizing previously unadvertised queries.

The stock is valued reasonably at a forward P/E ratio under 22, making it an appealing option for investors looking to capitalize on future growth.

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• Nvidia: If you invested $1,000 when we doubled down in 2009, you’d have $363,593!*
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Currently, we have “Double Down” recommendations for three exceptional companies, with potential for significant returns.

Discover 3 “Double Down” stocks »

*Stock Advisor returns as of December 23, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Geoffrey Seiler has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Intel, Meta Platforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft, short February 2025 $27 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.